Recently, the banking industry has demonstrated a trend, caused mostly by the economic downturn, of consolidation. With this trend we also see the availability of more banking branches overall. However, many smaller banks are failing, and the statistics analyzed below demonstrate that pattern. In this paper, we will take a close look at banking failure, and analyze one bank in order to demonstrate the overall trend.
The graphs used for this assignment display the current economic banking trend with severe clarity. As demonstrated by the chart under “Commercial Bank Reports,” the pubic appears to have more access to banking facilities than in previous years. Just about every year, the number of banking facilities increases. As the population has grown, the need for commercial institutions has increased, and will continue to increase. This is true of whether or not the economy is doing well or not. The chart shows a continuous increase, with a few years of drop; but the scale of the chart for the most part is upward. The trend of consolidation comes across in the presentation of the chart. In 1934, there were 14, 146 banks. In 2010, there were 6,529 institutions, according to the chart (FDIC). This demonstrates that banks are consolidating more and more often as the years pass. It does not mean, however, less access to banks since there is an almost continual growth in the branches themselves. Therefore, while consolidation does appear to be a continued pattern, it is not affecting the overall access to banks for most individuals. Still, this does not mean that availability is a reflection of a strong banking market; it is not. Banks are failing heavily, and the trend was very strong in 2010.
Again, this concept of bank failure is demonstrated solidly by the graph. The most recent calendar year, 2009-2010, shows that 237 banks failed (FDIC). The total assets held by the banks that failed was 1,090,318,282 (FDIC). This is demonstrated by the statistics present in the chart. Furthermore, in 1939, 137 banks failed (FDIC). The top three states where bank failures occurred in 2010 are Georgia, California, and Florida (FDIC). Comparing these statistics to bank failures during the Great Depression (the 1939 data) is a severe wake-up call when examining the economy. Since bank failures in the Great Depression were more common and quite devastating, the fact that even more banks failed in 2010 when compared with 1939 is a bit of a frightening statistic, although bank insurance does help to alleviate some of the issues, a concept not present in 1939. Still, analyzing these statistics make the overall economic panic of the previous few years quite relevant.
The trend of bank failure discussed above can be better analyzed by focusing on a specific bank that failed. The bank chosen is Pierce Commercial Bank located in Tacoma, Washington. In order to understand why the bank failed, we need to take a closer look at the overall statistics present and prepared by the FDIC. The total assets of the bank were 221,082 (FDIC). The total deposits were 193, 473 (FDIC). The failure date was November 5, 2010 (FDIC). Washington Department of Financial Institutions closed this bank without notice, so there was no Board of Directors decision. The order for possession was the same day as the failure date—November 5, 2010. This means that there was absolutely no forewarning, so the repercussions felt by customers of the bank must have been both frightening and overwhelming. We can only imagine how upset the failure of a bank can make that previous bank’s customers, when the bank is closed with absolutely no notice.
However, even with this lack of notice, the FDIC has attempted to make this transition smoother. The bidder that assumed the deposits in the bank was Heritage Bank, Olympia, WA. The FDIC did create an interim plan to handle deposits for customers. The press release states:
Your transferred deposits will be separately insured from any accounts you may already have at Heritage Bank for six months after the failure of Pierce Commercial Bank. Checks that were drawn on Pierce Commercial Bank that did not clear before the institution closed will be honored as long as there are sufficient funds in the account (FDIC)
Therefore, deposits will be transferred, and honored. Furthermore, checks would be processed as usual. If any individual runs into problems cashing a check, he or she is encouraged to contact the Olympia bank manager in order to check in and verify funds. ATM services will still be available, and the bank plans to maintain normal business hours while the transition is underway to ensure the easier transition of customers. (FDIC) The new bank has therefore taken some pains to try and ensure that the transition is smooth and the bank customers will be happy. However, the overall negative implications of the situation will certainly present some anticipated difficulties with the customers.
The goal of the FDIC is to make the banking transition as easy for customers as possible. The failed banking situation can easily create increased panic in individuals due to the current economic conditions, and the FDIC’s goal is to ensure to individuals using this failed bank that their money is safe and their information will continue on with the new bank. Therefore, customers will still have access to all of their banking information, including checks and deposits. The FDIC has provided helpful contact information for customers with questions in order to help make the transition easier (FDIC).
The press release, therefore, contains resourceful information for individuals with accounts at this failed bank, and gives them the contact information necessary to assist them with any questions they may have. In my opinion, the press release is a helpful piece of information, and should provide customers with the necessary information to assist him.
Still, the increasing trend toward bank failure only causes enduring stress on the economy and public fright. While most individuals cannot remember the Great Depression, comparing bank failure rates in 2010 to those during the Great Depression does help to bring home the serious issues behind the economic meltdown. The hopeful scenario is that 2011 will look better, as it seems that the economy is doing a bit better. However, with increased unemployment and the incredible debt of the United States government, there is still plenty of reason for apprehension regarding the current state of the economy.
Taking a specific look at a failing bank also helps to demonstrate some of the economic chaos present in such a situation. While the bulletin makes the issue sound as if it will run smoothly, customers will, of course, be quite distraught and full of questions. This would only be a natural reaction to a stressful situation. The surprise these individuals probably felt with the complete lack of notice when the bank was shut down can only be imagined. Therefore, while there was an overall effort to assist these individuals, the stress and panic they must feel as a result of this situation is more than likely rampant.
Works Cited
FDIC. “Failed Banking Information.” 2011. Web.